- 1). Review IRS Form 1040 and refer to the “Income” section, beginning on line 7, where the IRS categorizes various types of income. Determine if any of these apply to you. If you need help, use tax-preparation software or hire the services of a professional tax preparer.
- 2). Determine your job earnings. Most people earn income only from their jobs. Most regular employees receive a W-2 earnings statement; independent contractors receive a 1099-MISC income form. These forms, sent at the beginning of each year, detail how much you earned from that employer in the previous year. Add the totals from all of these forms to determine your total job earnings for the previous year. Job earnings qualify as taxable income.
- 3). Identify any other income you received in the previous year, such as unemployment compensation, Social Security benefits or money or property you inherited from a deceased relation. Your gross income comprises these income sources and your job earnings.
- 4). Check each source of income against IRS Publication 525, Taxable and Nontaxable Income, to determine if it is taxable. Enlist the help of tax-preparation software or a tax preparer if necessary. According to the IRS, some common sources of nontaxable income include gifts, child-support payments, welfare benefits and cash rebates from businesses.
- 5). Repeat this process at the state level, if your state has an income tax. Consult your state revenue department’s website or customer-service office to determine what income is taxable at the state level. Most income, including job earnings, qualifies as taxable income in most states with an income tax.
next post